Given below are the comparative financial statements of Cornerstone Company

Cornerstone Company

Comparative Balance Sheet

	This Year	Last Year
Assets
Current Assets
Cash	50,000	100,000
Accounts Receivable, net	300,000	150,000
Inventory	600,000	400,000
Prepaid Expenses	25,000	30,000
Total Current Assets	975,000	680,000
Property and Equipment, net	125,000	150,000
Total Assets	1,100,000	830,000
Liabilities and Stockholder's Equity
Current Liabilities
Accounts Payable	400,000	290,000
Short-term Notes Payable	200,000	60,000
Total Current Liabilities	600,000	350,000
Long-term Bonds Payable, 12%	100,000	150,000
Total Liabilities	700,000	500,000
Stockholder's Equity
Common Stock (100,000 shares)	200,000	200,000
Retained Earnings	200,000	130,000
Total Liabilities and Stockholder's Equity	1,100,000	830,000

Cornerstone Company

Comparative Income Statement

	This Year	Last Year
Sales	950,000	900,000
Less: Cost of Goods Sold	500,000	490,000
Gross Margin	450,000	410,000
Less: Selling and Administrative Expenses	275,000	260,000
Operating Income	175,000	150,000
Less: Interest Expense	12,000	18,000
Income before income taxes	163,000	132,000
Less: Income Taxes	65,200	52,800
Net Income	97,800	79,200
Less: Dividends	27,800	19,200
Net Income, retained	70,000	60,000

Refer to the information for Cornerstone Company.

Required:

For requirement No. 1 and 2: (Note: Round all percentages to one decimal place.)

1. Compute the percentage change for each item in the balance sheet and income statement. Present your analysis in good form. Comment on any significant trends.

2. Express each item in the asset section of the balance sheet as a percentage of total assets for each year. Express each item in the liabilities and equity section as a percentage of total liabilities and equity for each year. Express each item in the income statement as a percentage of sales for each year. Present your analysis in good form.

For requirement No. 3: (Note: Round all answers to two decimal place)

3. Compute the following ratios for each year:

3.1 Current ratio 3.2 Quick ratio or acid-test ratio 3.3 Accounts receivable turnover 3.4 Inventory turnover 3.5 Debt ratio 3.6 Return on assets 3.7 Return on stockholder's equity 3.8 Earnings per share

4. Answer the following questions:

4.1 Has the liquidity of Cornerstone improved over the past year? Explain why industrial liquidity performance would be useful information in assessing Cornerstone's liquidity performance.

4.2 Does Cornerstone have too much debt? What other information would help in answering this question?